February 6, 2019, Eileen Appelbaum

Last week, the US formally adopted sanctions on Venezuelan national oil company PDVSA, as well as on CITGO, its US-based distribution arm, as part of its press for regime change in Caracas. National Security Advisor John Bolton estimated the actions would affect some $7 billion in assets and would block $11 billion in revenue to the Venezuelan government over the next year. The State Department was quick to add, “These new sanctions do not target the innocent people of Venezuela…” But of course

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(This post originally appeared on my Patreon page.)

Back in 2013, Jared Bernstein and I wrote a book called Getting Back to Full Employment: A Better Bargain for Working People (free download). The main point of the book was that low unemployment rates disproportionately benefited those who are most disadvantaged in the labor market. For this reason, we argued for using macroeconomic policy to get the unemployment rate as low as possible, until inflation became a clear problem.

At that time the unemployment rate was still close to 7.0 percent. It was still coming down from its Great Recession peak of 10.0 percent, but there were many economists, including many at the Federal Reserve Board, who argued that it should not be allowed to fall below a range between of 5.0–5.5 percent, because lower rates of unemployment could trigger spiraling inflation.

In fact, this was pretty much the consensus view in the economics profession. At the time, the Congressional Budget Office (CBO) put the non-accelerating inflation rate (NAIRU) of unemployment at 5.5 percent. The NAIRU is essentially the target rate of unemployment for policymakers since they want to prevent the accelerating inflation that would result if the unemployment went much lower. CBO’s numbers are also important in this respect, not only because it is seen as an authoritative source, but also by design it tries to produce estimates that are well within the consensus in the economics profession.

Our argument was directed at these people. We felt the evidence that unemployment rates this high should pose any sort of floor for macroeconomic policy were weak. We also pointed out that economists had been badly mistaken two decades earlier, in the 1990s, when they argued that the unemployment rate could not get below 6.0 percent without triggering spiraling inflation.

Fortunately, the Greenspan Fed ignored that view and allowed the unemployment to fall to 4.0 percent as a year-round average in 2000. This gave us the late 1990s boom, the only period of sustained real wage growth for those at the middle and bottom of the wage ladder since the early 1970s. Given the enormous gains from allowing the unemployment rate to fall further, we felt the Fed should take the small risk of accelerating inflation, and allow the unemployment to continue to decline below the conventional estimates of the NAIRU.

Thankfully, Janet Yellen, who was then Fed chair, agreed with this position. (It helped that our friends with the Fed Up Coalition were also pushing hard in this direction.) She held the Fed’s key federal funds rate at zero until December of 2015, at which point the unemployment rate had fallen to 5.0 percent. Since then, the Fed has had a path of moderate rate hikes (faster than I would have liked), that have not prevented the unemployment rate from falling further.

If Russia, China, and North Korea decided to recognize Nancy Pelosi as the president of the United States, would Americans go along with that?

CEPR regularly publishes a curated collection of original research from academic institutions and nonprofits on the state of the US labor market. The compilation is part of our ongoing effort to promote informed debate on the most important economic and social issues that affect people's lives.

David Leonhardt used his column to give us a story about how the millennials are the big losers and the oldsters are the big winners in today's economy. The piece shows trends in the growth of income and wealth which show the over 65 group doing very well and everyone else not. This is not a quite a simple granny-basher column, Leonhardt does come around at the end and tells readers:

"But the country’s biggest economic problems aren’t about hordes of greedy old people profiting off the young. They’re about an economy that showers much of its bounty on the already affluent, at the expense of most Americans — and of our future. The young pay the biggest price for these inequities."

Nonetheless, there are a couple of points that are misleading and need some qualification.

First, when it comes to the median income of people over age 65, it is important to note that this is much more likely to reflect the income of a household with at least one worker than would have been the case a quarter century earlier. The percentage of people between the ages of 65 to 69 who are working rose from 21.0 percent in 1994 to 31.9 percent in 2018. For people between the ages of 70 to 74 it rose from 11.3 percent to 18.9 percent.

 Employment to Population Ratio 70–74 Years

Source: Bureau of Labor Statistics.

This increase in employment among older workers is not all negative. In many cases, it is due to the fact that older people are more likely to be in good health and to be working at jobs they enjoy. But in many cases, these are people who are working because they have no other way to make ends meet. In these cases, it is not an apples-to-apples comparison to say that the income of an older worker in 2018 is higher than a non-working retiree 25 years earlier.

Dean Baker
Truthout, January 28, 2019